by Cassandra Majors, Independence Title
The Austin real estate market has exploded in recent years, and the luxury market has been no exception. In times of economic trouble, home sales plummet and our industry takes a major hit. However, the luxury home market is usually the last sector of housing to feel the effects of a downturn and the first to recover when things start improving. After years of booming population growth and rising home prices, how is the Austin luxury market doing now?
What do we mean when we say “luxury,” in terms of the real estate market? There’s no universal standard or checklist. If I could invent one, it would definitely require items like:
• 20-foot-high security wall with minor celebrities serving as armed guards
• Marble from the dismantled monuments of past monarchies
• Diamond-encrusted bidet (squirting Evian water only, of course)
• Enough square footage that you never have to see your own family
Unfortunately, I don’t get to invent the criteria for luxury real estate, so I’ll have to rely on the wisdom of the Institute for Luxury Home Marketing, founded in 2003 by one of my real estate heroes, Laurie Moore-Moore. For the Institute’s members to be able to earn the prestigious Certified Luxury Home Marketing Specialist designation, they must show (among other things) that they sell in the top 10% pricing of their local market or above $500,000, whichever is greater. This makes a lot of sense—it “flattens” the country’s various markets by creating a standard threshold that allows us to compare them. A million-dollar home in Manhattan means something very different than a million-dollar home in Westlake, after all.
The Luxury Standard in Austin
Using the top 10% rule, here’s the minimum price a home in Austin would need to sell for over the last five years to be considered “luxury” by this standard.
Year Greater Austin* Austin Only**
*All areas covered by ABOR’s MLS
**Austin, Bee Cave, Lakeway, Rollingwood, The Hills, Volente, and West Lake Hills
How is the Luxury Market in Austin?
For this section, we’ll stick with Austin only in our figures since it’s hard to define a true luxury market using the entire greater Austin area.
The average days on market in 2012 for luxury homes was 83, which then fell to 71 in 2013 and 63 in 2014. Since then, however, they’ve taken significantly longer on average to sell. 2015 was 74 days on market (a 17% increase) and then up to 78 days in 2016 (a 5% increase). Here in 2017, things have gotten a little better and we’re down to 76 average days on market so far, but this statistic doesn’t carry a lot of weight. We haven’t had to go through the winter yet, which will probably drag the days on market back up. We won’t know for sure until next year, but for now, at least, it’s safe to say we’re no worse off than in 2016.
Why are luxury homes staying on the market longer in recent years? There are a variety of factors that may be playing into it. One obvious answer is the price increase—Austin has seen incredible increases in average and median sales prices year-over-year for the last five years. It’s often better to look at the median sales price increase in order to avoid the up-and-down swings that can come from averages, but even the median has increased at least 6% a year since 2012.
Year Median Price YOY Increase
Note: This summarizes for Austin Only as defined above, all price ranges.
As the upper 10% of the market moves higher and higher along with the rest of the market, fewer buyers are able to afford them and the homes sit on the market for longer. There has also been an increase in luxury inventory, which increases competition. 2016 saw on average about a 14% increase in luxury listings over 2015. Other factors can be theorized but not easily proven. Some possibilities include market saturation (the net migration of wealthy residents has slowed down somewhat), unrealistic expectations (sellers of luxury homes believe their homes will sell for more than they will or are willing to wait longer for a better offer), or buyers’ fear of an overvalued market (thinking that Austin may have topped out or is in a bubble and luxury buyers may not get a return on their investment). This list is by no means exhaustive.
We also have to account for the limitations of MLS data—many luxury homes are sold off-market (so-called “pocket listings”), often to protect the privacy of their sellers. My rough estimate is that somewhere around 5% of million-dollar homes sold since 2016 were sold outside of the MLS. That’s not an insignificant number, especially considering that pocket listings may be listed at above-average prices even by luxury standards.
The Million-Dollar Standard
Do you think the 10% standard is far too generous? This section is for you.
Here I’ll compare nothing but million-dollar homes and we’ll widen the area to all of the greater Austin MLS. Though it makes apples-to-apples comparisons a bit more difficult (a million dollars today buys less home than it did in 2012), it does help show what’s happening at a certain level of luxury. By this standard, things are going very well for central Texas. Below is a chart showing how many $1,000,000+ homes have sold per year over the last five years. The redder column shows 2016’s total in the same range as 2017 so far (January – July) so you can see just how much these sales are up since last year.
That’s a 34% increase over 2016 so far this year, which is exceeded only by the incredible leap we had back in 2013 (a 51% increase in sales from 2012). For days on market, the story is the same as the top 10%–homes simply aren’t selling as quickly. 2014 was the fastest selling at an average of 87 days, then shot up to 100 days for 2015 and 2016, and is now at about 97 days for 2017 so far. However, this is still much better than the years 2008 – 2012 when the average days on market for million-dollar homes was almost always in the neighborhood of 135 days.
The average price of a million-dollar home has also increased since last year, meaning we’re seeing higher prices in general but also more $2,000,000 and above homes. We’ve already sold 108 2M+ homes just through July in 2017, compared to 116 of those sales in ALL of 2016, and we’re well on track to shatter the last record of 128 2M+ sales set in 2015. Move the threshold up to 3,000,000 and we’ve already had 37 sales, one ahead of the record of 36 3M+ sales set in 2015…and we’ve still got five months left to go.
Are luxury agents lowering their prices to get these homes to sell faster? The data says no, at least not very often. The close-to-list-price ratio for million-dollar homes has been hovering around 95% since 2013 and is currently up to 96% in 2017 so far, so most listings are getting close to what they asked for (always a sign of a robust market).
Austin’s luxury market is strong—prices keep going up, homes are selling for close to what they list for, and more mega-luxury homes are selling than ever before. The only caveat is homes are taking longer to sell, but for the patient luxury agent, the payday will still be just as good when their homes finally close.
Cassandra Majors has been a market analyst and data guru in the Austin real estate industry for over a decade.